Financial Modelling Homework

Some General Notes:

-The Homework will be written in MSWord (including the pictures/screenshots/tables/graphs). (you can rar and upload the word and excel files together as a single file)

-No plagiarism!!!! If you include direct Copy/Paste parts you will get 0 (zero) points from the whole section homework!!! So Please prepare everything by yourself written with your own words!!

A.1 Descriptive statistics of the Data you are given for your Homework: this will include basic line charts of the daily-weekly-monthly closing values together with same Descriptive Statistics tables (those are for the Returns of course). You can easily do these in Excel or in Eviews (which also has some histogram and normality tests)

A.2 ARMA analysis (every step of the Box-Jenkins procedure must be included in your file)

A.3 VaR for an equally weighted portfolio composed of the three assets (only for the monthly data, 3 methods: statistical, historical, ARCH-GARCH)

A.4 Price Simulation: use the Monte Carlo method to simulate the future prices of only one of the assets. You can use 100 simulations for the next 12 months (you are using monthly data so 1 year from now on) and please plot them on the same graph with the index itself (as shown in the lecture)

A.5 For each price simulation also simulate the price of a European call option written on the last date of the available index data, with strike price equal to the level of the index on that date. Risk free rate depends on the interest of the country index is being traded. Duration of the option is the length of the simulation in part A (1 year). So, most of the variables will be changing with the simulated prices (apart from Rf and K). Sketch the exercise and not exercise graphs like we did in the lecture.

Please use that data :

ETD: Mexican index, Ford, FTSE